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that notes nhould only bo issued on the security of some valuable thing expressly pledged for their redemption, would really be efficacious as a precaution. But the theory takes no account of another evil, which is incident to the notes of the most solvent firm, company, or government: that of being depreciated in value from being issued in excessive quantity. The assignats, during the French Revolution, were an example of a currency grounded on tl.ese principles. The assignats "represented'' an immense amount of highly valuable property, namely the lands of the crown, the church, the monasteries, and the emigrants; amounting possibly to half the territory of France. They were, in fact, orders or assignments on this mass of land. The revolutionary government had the idea of "coining" these lands into money; but, to do them justice, they did not originally contemplate the immense multiplication of issues to which they were eventually driven by the failure of all other financial resources. They imagined that the assignats would come rapidly back to the issuers in exchange for land, and that they should be able to reissue them continually until the lands were all disposed of, without having at any time more than a very moderate quantity in circulation. Their hope was frustrated: the land did not sell so quickly as they expected ; buyers were not inclined to invest their money in possessions which were likely to be resumed without compensation if the Revolution succumbed: the bits of paper which represented land, becoming prodigiously multiplied, could no more keep up their value than the land itself would have done if it had all been brought to market at once: and the result was that it at last required an assignat of six hundred francs to pay for a pound of butter.
The example of the assignats has been said not to be conclusive, because an assignat only represented land in general, but not a definite quantity of land. To have prevented their depreciation, the proper course, it is affirmed, would have been to have made a valua
tion of all the confiscated property at its metallic value, and to have issued assignats up to, but not beyond, that limit; giving to tho holders a right to demand any piece of land, at its registered valuation, in exchange for assignats to the same amount. There can be no question about the superiority of this plan over the one actually adopted. Had this course been followed, the assignats could never have been depreciated to the inordinate degree they were; for—as they would have retained all their purchasing power in relation to land, nowever much they might have fallen in respect to other things—before they had lost very much of their market value, they would probably have been brought in to be exchanged for land. It must be remembered, however, that their not being depreciated would presuppose that no greater number of them continued in circulation than would have circulated if they had been convertible into cash. However convenient, therefore, in a time of revolution, this currency convertible into land on demand might have been, as a contrivance for selling rapidly a great quantity of land with the least possible sacrifice; it is difficult to see what advantage it would have, as the permanent system of s» country, over a currency convertible into coin: while it is not at all difficult to see what would be its disadvantages; since land is far more variable in value than gold and silver; and besides, land, to most persons, being rather an incumbrance than a desirable possession, except to be converted into money, people would submit to a much greater depreciation before demanding land, than they will before demanding gold or silver.*
§ 4. Another of the fallacies from which the advocates of an inconvertible
* Among the schemes of currency to which, strange to say, intelligent writers have been found to give their sanction, one is as follows: that the state should receive in pledge or mortgage, any kind or amount of property, such as land, stock, &c., and should advance to the owners inconvertible paper money to the estimated value. Such a currency would 'V3t even have the recommendations of tin' eurrency derive support, is the notion that an increase of the currency quickens industry. This idea was set tfloat by Hume, in his Essay on Money, and has had many devoted adkerents since; witness the Birmingham currency school, of whom Mr. Attwood was at one time the most conspicuous representative. Mr. Attwood maintained that a rise of prices produced by an increase of paper currency, stimulates every producer to his utmost exertions, and brings all the capital and labour of the country into complete employment: and that this has invariably happened in all periods of rising prices, when the rise was on a sufficiently great scale. I presume, however, that the inducement which, according to Mr. Attwood, excited this unusual ardour in all persons engaged in production, must have been the expectation of getting more of commodities generally, more real wealth, in exchange for the produce of their labour, and not merely more pieces of paper. This expectation, however, must have been, by the very terms of the supposition, disappointed, since, all prices being supposed to rise equally, no one was really better paid for his goods than before. Those who agree with Mr. Attwood could only succeed in winning people on to these unwonted exertions, by a prolongation of what would in fact be a delusion; contriving matters so, that by a progressive rise of money prices, every producer shall always seem to be in the very act of obtaining an increased remuneration which he never, in reality, does obtain. It is unnecessary to advert to any other of the objections to this plan, than that of its total impracticability. It calculates on finding the whole world persisting for ever in the belief that more pieces of paper are more riches, and never discovering that, with all their paper, they cannot buy more of
imaginary assignats supposed in the text; since those into whose hands the notes were paid by the persons who received them, could not return them to the Government, and demand in exchange land or stock which was only pledged, not alienated. There would be no reflux of such assignats as these, and their depreciation would be indefinite.
anything than they could before. No such mistake was made during any of the periods of high prices, on the experience of which this school lays so much stress. At the periods which Mr. Attwood mistook for times of prosperity, and which were simply (as all periods of high prices, under a convertible currency, must be) times of speculation, the speculators did not think they were growing rich because the high prices would last, but because they would not last, and because whoever contrived to realize while they did last, would find himself, after the recoil, in possession of a greater number of pounds sterling, without their having become of less value. If, at the close of the speculation, an issue of paper had been made, sufficient to keep prices up to the point which they attained when at the highest, no one would have been more disappointed than the speculators; since the gain which they thought to have reaped by realizing in time (at the expense of their competitors, who bought when they sold, and had to sell after the revulsion) would have faded away in their hands, and instead of it they would have got nothing except a few more paper tickets to count by.
Hume's version of the doctrine differed in a slight degree from Mr. Attwood's. He thought that all commodities would not rise in price simultaneously, and that some persons therefore would obtain a real gain, by gettir.g more money for what they had to sell, while the things which they wished to buy might not yet have risen. And those who would reap this gain would always be (he seems to think) the first comers. It seems obvious, however, that for every person who thus gains more than usual, there is necessarily some other person who gains less. The loser, if things took place as Hume supposes, would be the seller of the commodities which are slowest to rise; who, by the supposition, parts with his goods at the old prices, to purchasers who have already benefited by the new. This seller has obtained for his commodity only the accustomed quantity of money, whil» there are already some things of which that money will no longer purchase as much as before. If, therefore, he knows what is going on, he will raise his price, and then the buyer will not have the gain, which is supposed to stimulate his industry. But if, on the contrary, the seller does not know the state of the case, and only discovers it when he finds, in laying his money out, that it does not go so far, he then obtains less than the ordinary remuneration for his labour and capital; and if tho other dealer's industry is encouraged, it should seem that his mast, from the opposite cause, be inpaired.
§ 5. There is no way in which a general and permanent rise of prices, or in other words, depreciation of money, can benefit anybody, except at the expense of somebody else. The substitution of paper for metallic currency is a national gain: any further increase of paper beyond this is but a form of robbery.
An issue of notes is a manifest gain to the issuers, who, until the notes are returned for payment, obtain the use of them as if they were a real capital: and so long as the notes are no permanent addition to the currency, but merely supersede gold or silver to the same amount, the gain of the issuer is a loss to no one: it is obtained by saving to the community the expense of the more costly material. But if there is no gold or silver to be superseded—if the notes are added to the currency, instead of being substituted for the metallic part of it—all holders of currency lose, by the depreciation of its value, the exact equivalent of what the issuer gains. A tax is virtually' levied on them for his benefit. It will Ve objected by some, that gains are also made by the producers and dealers who, by means of the increased issue, are accommodated with loans. Theirs, however, is not an additional gain, but a portion of that which is reaped by the issuer at the expense of all possessors of money. The profits arising from the contribution levied upon the public, he does not keep to himself, but divides with his customers.
But besides the benefit reaped by the issuers, or by others through them at the expense of the public generally, there is another unjust gain obtained by a larger class, namely by those who are under fixed pecuniary obligations. All such persons are freed, by a depreciation of the currency, from a portion of the burthen of their debts or other engagements: in other words, part of the property of their creditors is gratuitously transferred to them. On a superficial view it may be imagined that this is an advantage to industry; since the productive classes are great borrowers, and generally owe larger debts to the unproductive (if we include among the latter all persons not actually in business) than the unproductive classes owe to them; especially if the national debt be included. It is only thus that a general rise of prices can be a source of benefit to producers and dealers; by diminishing the pressure of their fixed burthens. And this might be accounted an advantage, if integrity and good faith were of no importance to the world, and to industry and commerce in particular. Not many, however, have been found to say that the currency ought to be depreciated on the simple ground of its being desirable to rob the national creditor and private creditors of a part of what is in their bond. The schemes which have tended that way have almost always had some appearance of special and circumstantial justification, such as the necessity of compensating for a prior injustice committed in the contrary direction.
§ 6. Thus in England, for many years subsequent to 1819, it was pertinaciously contended, that a large portion t of the national debt, and a multitude of private debts still in existence, were contracted between 1797 and 1819, when the Bank of England was exempted from giving cash for its notes, and that it is grossly unjust to borrowers, (that isr in the case of the national debt, to all tax-payers) that thejr should be paying interest on the sams nominal sums in a currency of fuH value, which were borrowed in a depraeiated one. The depreciation, accord*
Ing to the views and objects of the particular writer, was represented to have averaged thirty, fifty, or even more than fifty per cent: and the conclusion was, that either we ought to return to this depreciated currency, or to strike off from the national debt, and from mortgages or other private debts of old standing, a percentage corresponding to the estimated amount of the depreciation.
To this doctrine, the following was the answer usually made. Granting that, by returning to cash payments without lowering the standard, an injustice was done to debtors, in holding them liable for the same amount of a currency enhanced in value, which they had boiTowed while it was depreciated; it is now too late to make reparation for this injury. ■ The debtors and creditors of to-day are not the debtors and creditors of 1819: the lapse of years has entirely altered the pecuniary relations of the community; and it being impossible now to ascertain the particular persons who were either benefited or injured, to attempt to retrace our steps would be not redressing a wrong, but superadding a second act of wide-spread injustice to the one already committed. This argument is certainly conclusive on the practical question; but it places the honest conclusion on too narrow and too low a ground. It concedes that the measure of 1819, called Peel's Bill, by which cash payments were resumed at the original standard of SI. lis. 10£<£, was really the injustice it was said to be. This is an admission wholly opposed to the truth. Parliament had no alternative; it was absolutely bound to adhere to the acknowledged standard; as may be shown on three distinct grounds, two of fact, and one of principle.
The reasons of fact are these. In the first place, it is not true that the debts, private or public, incurred during the Bank restriction, were contracted in a currency of lower value than that in which the interest is now paid. It is indeed true that the suspension of the obligation to pay in specie, did put it in the power of the Bank to depreciate the currency. It is true also that the Funk really exercised that power,
though to a far less extent than is often pretended; since the diS'erence bet ween the market price of gold and the Mint valuation, during the greater part of the interval, was very trifling, and when it was greatest, during the last five years of the war, did not much exceed thirty per cent. To the extent of that difference, the currency was depreciated, that is, its value was below that of the standard to which it professed to adhere. But the state of Europe at that time was such—there was so unusual an absorption of the precious metals, by hoarding, and in the military chests of the vast armies which then desolated the Continent, that the value i of the standard itself was very considerably raised: and the best authorities, among whom it is sufficient to name Mr. Tooke, have, after an elaborate investigation, satisfied themselves that the difference between paper and bullion was not greater than the enhancement in value of gold itself, and that the paper, though depreciated relatively to the then value of gold, did not sink below the ordinary value, at other times, either of gold or of a convertible paper. If this-be true (and the evidences of the fact are conclusively stated in Mr. Tooke's history of Prices) the foundation of the whole case against the fundholder and other creditors on the ground of depreciation is subverted.
But, secondly, even if the currency had really been lowered in value at each period of the Bank restriction, in the same degree in which it was depreciated in relation to its standard, we must remember that a part only of the national debt, or of other permanent engagements, was incurred during the Bank restriction. A large part had been contracted before 1797; a still larger during the early years of the restriction, when the difference between paper and gold was yet small. To the holders of the former part, an injury was done, by paying the interest for twenty-two years in a depreciated currency: those of the second, suffered an injury during the years in which tha interest was paid in a currency mora depreciated than that iu winch, the loans were contracted. To have resumed cash payments at a lower standard would have heen to perpetuate the injury to these two classes of creditors, in order to avoid giving an undue benefit to a third class, who had lent their money during the few years of greatest depreciation. As it is, there was an underpayment to one set of persons, and an overpayment to another. The late Mr. Musnet took the trouble to make an arithmetical comparison between the two amounts. He ascertained by calculation, that if an account had been made out in 1819, of what the fundholders had gained and lost by the variation of the paper currency from its standard, they would have been found as a body to have been losers; so that if any compensation was due on the ground of depreciation, it would not be from the fundholders collectively, but to them.
Thus it is with the facts of the case. But these reasons of fact are not the strongest. There is a reason ot principle, still more powerful. Suppose that, not a part of the debt merely, but the whole, had been contracted in a depreciated currency, depreciated not only in comparison with its standard, but with its own value before and after; and that we were now paying the interest of this debt in a currency of fifty or even a hundred per cent more valuable than that in which it was contracted. What difference would this make in the obligation of paying it, if the condition that it should be so paid was part of the original compact? Now this is not only truth, but less than the truth. The compact stipulated better terms for the fundholder than he has received. During the whole continuance of tha Bank re
striction, there was a parliamentary pledge, by which the legislature was as much bound as any legislature is capable of binding itself, that cash payments should be resumed on the original footing, at farthest in six months after the conclusion of a general peace. This was therefore an actual condition of every loan; and the terms of the loan were more favourable in consideration of it. Without some such stipulation, the Government could not have expected to borrow unless on the terms on which loans are made to the native princes of India. If it had been understood and avowed that, after borrowing the money, the standard at which it was computed might be permanently lowered, to any extent which to the "collective wisdom" of a legislature of borrowers might seem fit—who can say what rate of interest would have been a sufficient inducement to persons of common sense to risk their savings in such an adventure? However muctt the fundholders had gained by the resumption of cash payments, the terms of the contract insured their giving ample value for it. They gave value for more than they received; since cash payments were not resumed in six months, but in as many years, after the peace. So that waving all our arguments except the last, and conceding all the facts asserted on the other side of the question, the fundholders,instead ofbeing unduly benefited, are the injured party; and would have a claim to compensation, if such claims were not very properly barred by the impossibility of adjudication, and by the salutary general maxim of law and policy, that questions should at some time or another come to au end.